New U.S. Mortgage System Lost in Wasteland

By Mike Colpitts

The new home builders association released a proposal to redesign the U.S. housing finance system, which would eventually wipe-out signs Freddie Mac and Fannie Mae, the nation’s giant mortgage lenders. The National Association of Home Builders proposal is similar to others that have been offered by industry groups lost in a wasteland for Congress to consider.

Under the builders scenario, the two government backed lenders would be gradually replaced by banks and other mortgage lenders, but the building industry’s largest group of home builders seems to forget that both Fannie and Freddie were started to fill a avoid that was left vacant. There weren’t enough banks and mortgage companies willing to extend credit to families seeking home mortgages, the same shortage that exists today.

The Obama administration has floated a plan before Congress outlining potential approaches to reform the government’s role in mortgage lending, and at least the Mortgage Bankers Association likes what it sees.

“By putting forth its white paper, the Obama administration joins Congress, the industry and other stakeholders in advancing the dialog on the proper role of the government in the real estate finance markets,” said Michael Berman, chairman of the bankers’ association.

reduced priced real estate

“We are gratified to see that one of the concepts they articulate closely tracks MBA’s proposal, released eighteen months ago, that visualizes a workable, commonsense system driven by private capital. Our proposal envisions an explicit, but limited government guarantee of lower-risk mortgage-backed securities.”

The proposed guarantee would be paid for by fees to build a fund to protect tax payers from additional financial losses from mortgages that are foreclosed.

“Our plan seeks to overhaul the housing finance system to ensure that housing credit is available and affordable in the future and is delivered through a competitive, efficient, sound, safe and stable system,” said NAHB chairman Barry Rutenberg.

Under the builders plan, Fannie Mae and Freddie Mac would be replaced by private financing that would purchase single family and multifamily mortgages from loan originators and package the loans into securities to be sold to investors. The federal government would guarantee the securities instead of mortgages.